Infotech and the Law

As E-Buying Hits Fed World, Time to Draw Lines

May 19, 2000

Richard Rector

By Richard Rector

Five years from now, rankings among the Top 100 federal contractors will turn, in part, on how fully contractors embrace the evolving concept of e-acquisition. Information technology is rapidly transforming the ways in which businesses, governments and consumers interact with one another, and this transformation will reach the federal acquisition process in the near future.

In fact, some of the innovations currently occurring in the business-to-business environment, such as online reverse auctions and collaborative purchasing through online exchanges, may soon reshape government buying practices, particularly for commercial supplies and services.

Online reverse auctions, for example, could revamp or even replace the sealed-bidding processes that have long been used in government procurement. In a reverse auction, the government would post an electronic solicitation for the item to be purchased, and prequalified bidders would respond with price quotes for the item during a designated time period.

Unlike traditional bidding processes, however, bidders would see the quotes of their competitors in real time and could lower their prices in response to the competition. At the conclusion of the auction period, an award would be made to the lowest bidder, consummating a theoretically perfect union of supply and demand.

Reverse auctions have been very successful in the business-to-business environment to date, with companies reporting significant cost savings. These savings have not gone unnoticed in the federal arena, where the government continues its push toward commercial buying practices. Both the General Services Administration and the U.S. Postal Service reportedly plan to conduct such auctions on a trial basis in the next few months.

Reverse auctions are most clearly suited to commodity acquisitions, where neither the quality of the item nor the service associated with the item is likely to vary significantly among suppliers. Thus, if an agency needs to buy computer paper, for example, an online auction may be the ideal way to squeeze the best price out of numerous qualified suppliers.

By contrast, if an agency needs to buy computers and related support service, an auction may not be appropriate. In that situation, as in most IT acquisitions, an agency would not simply be seeking the lowest bidder. Rather, the agency would want the discretion to select a contractor that offered the "best value" to the government, based on a combination of price, system performance, service capability and past performance.

But what if the reverse auction technique was used simply as one step in the e-acquisition process, not as the determinative means of making award? In other words, what if the government posted an electronic solicitation for IT supplies and service, performed a streamlined evaluation of offerors' proposals based on non-price evaluation factors, conducted an online reverse auction to obtain the offerors' best prices, then made a "best value" award decision based on both price and non-price factors?

Such an approach would appear to provide the government with the best of both worlds in commercial-item acquisition: flexibility to select the best-value solution, coupled with assurances that the lowest possible price had been obtained.

In fact, an e-acquisition approach of this type may well supplant the Multiple Award Schedule program in the coming years, because the MAS program has the same objective ? best value at lowest cost ? but probably could not be as efficient or as ruthlessly cost-effective as an auction-based, electronic acquisition.

There are questions, however, as to the legality of auction techniques under existing laws. For example, the disclosure of bid prices during an online auction would appear to violate procurement integrity laws, which prohibit the release of contractor bid and proposal information prior to contract award. In addition, auction techniques raise concerns regarding independent price determination and the potential for collusive bidding.

Moreover, the government's use of auction techniques has important public policy implications. While obtaining a fair price is an important goal in any procurement, that goal must be balanced against policy objectives such as ensuring full and open competition, promoting opportunities for small businesses, and providing contractors with adequate returns on their commitment to public procurement.

In short, the concept of e-acquisition has clearly arrived. But it is time for public debate on the appropriate limits of the concept in public procurement.

Richard Rector is a partner in the Government Contracts Practice Group at Piper Marbury Rudnick & Wolfe LLP in Washington. His e-mail address is richard.rector@piperrudnick.com.